Disney 2016 – 2020 Reformulation Task Case Solution & Answer

Disney 2016 – 2020 Reformulation Task Case Solution 

Question 4

Disney’s competitive advantage is in its product differentiation strategy, high acquisition investments and the strongest brand reputation. Disney has sustained its competitive advantage for years. The ratio analysis has been conducted to identify whether or not the company would be able to sustain its competitive advantage in future.

The return on common shareholders’ equity has increased over the time, i.e. from 21.71% in 2016 to 27.97% in 2018. However the ROCE had decreased to 16.06% in 2019 and continued to reached to the negative figure of -3.32% in 2020. Similarly, the return on net operating assets (RNOA) followed an increasing trend from 2016-2018, after which it started to decrease and finally reached to -1.11% in 2020.

Moreover, the company’s financial liability has increased from 46% in 2016 to 64% in the fiscal year 2020. It means that the company’s dependency over the debt has increased in order to have its operations supported. In relevancy, the company’s net borrowing cost has also increased from -0.46% in 2018 to 2.37% in 2020. The net operating asset turnover remained 0.86 in 2018 however, it dropped to 0.46 in 2020, and i.e. the efficiency of the company in running the operations has declined.

The fixed asset turnover ratio shows the sales generated by the company for each unit of the f9ixed assets. Over the previous years, the fixed asset turnover ratio of the company has increased from 1.3 to 1.5 but till 2020, the ratio approached to 1.37, i.e. a slight decline due to the lockdowns and operations shutdown in different parts of the world.

Additionally, the company’s cost of goods sold as a percentage of sales, has also increased from 53.91% in 2016 to 60.43% in 2019 and to 67.11% in 2020. The selling general and administrative expenses have also increased as a percentage of sales. Moreover, the growth ratios show that the operating assets, net operating assets, net income, operating income from core operations and inventory turned negative in the fiscal year 2020. In the previous years, the growth ratio have been quite attractive for Disney Company, which shows that the company was enjoying a competitive position in the industry, before the pandemic.

The days to collect the receivables have increased from 59.48 in 2016 to 78.68 in 2020. The days to turnover inventory have decreased while the days of parables have increased, which shows that the company is facing difficulties in paying its suppliers due to its declined sales, high costs and extensive days to collect the receivables. The company’s sales have declined by 6.606% in 2020……………

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